U.S. transitory inflation has not peaked yet
Head of Macro Analysis
Summary: In July, U.S. ISM price components (which refers to both delivery times and prices) have dropped for the first time in twelve months. Are we seeing the first signs of peaking U.S. transitory inflation?
Our underlying view is that supply constraints look set to continue in coming quarters, as will price pressures and labour shortages. As a result, inflationary pressures could prove to be more persistent than commonly expected. The below chart is a warning to all investors that U.S. inflation has likely not peaked yet.
In the chart below, we show the relationship between U.S. core inflation and the underlying inflation gauge of the Federal Reserve of New York. The tracker was created in 2019 and aims to reconcile macroeconomic data and financial variables to better measure and forecast the evolution of inflation. If you wish, you can access the full data set and understand the methodology here. We find a high correlation of 0.7 between the tracker and core CPI, with the tracker leading core CPI by a little over a year. The correlation suggests that U.S. inflation has likely not peaked yet. The peak is expected to be reached in the first quarter of 2022. If inflation runs uncomfortably high in coming months as suggested by the tracker, expect the Federal Reserve to eventually accelerate tapering timelines.
Quarterly Outlook Q2 2022
Quarterly Outlook Q2 2022: The End Game has arrived
- Shocks from covid and the war in Ukraine have forced the global financial and political world to change, but what will the end game be?
Energy crisis could turn energy stocks into secular winnerWith long-term expected returns for the global energy sector close to 10%, we look at 40 stocks that could be set to cash in.
The great EUR recovery and the difficulty of trading itIf the terrible fog of war hopefully lifts soon, the conditions are promising for the euro to reprice significantly higher.
Tight commodity markets – turbocharged by war and sanctionsWith supply already tight, commodities keep powering on. But will it last for yet another quarter?
Between a rock and a hard placeGeopolitical concerns will add upward price pressures and fears of slower growth, while volatility will remain elevated.
The Great ErosionInflation is everywhere and central banks try to combat it. But will they get it under control in time?
Australian investing: Six considerations amid triple Rs: rising rates, record inflation and likely recessionWhile global financial markets are struggling in an uncertain world, the commodity-heavy Australian ASX index is poised to keep a positive momentum.
Cybersecurity – the rush to catch up with realityWith the invasion of Ukraine, governments and private companies are rushing to reinforce their cyber defenses.